August 2021
In This Issue:
Recent Cases in Community Association Law
Association Cannot Sue Developer's General Contractor for Construction Defects
Developer Misrepresentations Did Not Make Units Illegal
County Inadvertently Terminates Public Beach Access By Attempting to Broaden Scope of the Public's Use Rights
Fair Housing Act Did Not Entitle Owner to Create Fenced Yard in Common Elements for Emotional Support Dogs
McDonald's Did Not Get Exclusive Operating Rights
Ledger Showing Unpaid Balance is Insufficient to Prove Amounts Due by Owner
Amendment Specifying Prohibited Uses Merely Clarified Broadly Worded Restrictions in Original Declaration
Airbnb Occupancy Agreement is a Commercial Use but not a Short-Term Rental
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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are illustrations only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser. In addition, CAI’s College of Community Association Lawyers prepares a case law update annually. Case law summaries along with their references, case numbers, dates, and other data are available online.


Association Cannot Sue Developer's General Contractor for Construction Defects

1400 Museum Park Condominium Association v. Kenny Construction Company, No. 1-19-2167 (Ill. App. Ct. Aug. 5, 2021)

Construction Defects: The Appellate Court of Illinois held that a condominium association could not sue the developer's general contractor for construction defects where the contractor had no contractual relationship with the individual unit purchasers.


1400 Museum Park Condominium Association (association) governed a 260-unit condominium in Chicago. 1400 Museum Park, LLC (developer) developed the condominium.

The developer hired Kenny Construction Company (Kenny) as its general contractor, and Franks Mechanical Contractors, Inc. (Franks) was hired as the plumbing subcontractor. Construction of the building was completed in 2008. The developer had sold all the units by 2011, and the company was dissolved.

In 2013, the association discovered leaks in the building's hot water supply riser (the vertical water supply line that rises from one story to the next). Further investigation revealed latent defects (defects that could not have been discovered by a purchaser conducting a reasonable inspection of the property prior to purchase) in the design, materials, and construction of the riser system. After Kenny refused to investigate or correct the defects, the association undertook the repairs at a cost in excess of $1 million.

In 2016, the association sued Kenny for breach of the implied warranty of habitability. The association later added claims against Franks. The implied warranty of habitability is an implied covenant by a builder-seller that the home which it contracted to build and sell to the purchaser is reasonably suitable for its intended use. The implied warranty is limited to latent defects attributable to the builder's design or construction that interfere with the purchaser's legitimate expectation that the home will be reasonably suited for its intended use as a residence.

In 2018, the Illinois Supreme Court held in Sienna Court Condominium Association v. Champion Aluminum Corporation, 129 N.E.3d 1112 (Ill. 2018), that a claim for breach of the implied warranty of habitability was a contractual claim, and the home purchaser could not pursue the claim against a subcontractor where the subcontractor had no contractual relationship with the purchaser. Kenny moved to dismiss the case based on the Sienna Court ruling because it had no contractual relationship with the individual unit owners. The trial court agreed and dismissed the case. The association appealed.

The ruling in the Sienna Court case was based on the economic loss rule, whose purpose is to distinguish between claims based on common law theories of tort and strict liability versus ones based on principles of contract law. The supreme court explained in Sienna Court that the damages that can be recovered under the implied warranty of habitability is for disappointed commercial expectations based on a contract. As such, unit purchasers cannot recover damages from contractors or subcontractors with whom they had no contractual relationship.

The association contended that, once the developer was dissolved and became insolvent, the individual unit owners stepped into the developer's shoes with respect to the developer's contract with Kenny. The appeals court disagreed, stating that only a valid assignment of the contract by the developer would allow the owners to take the place of the developer with respect to the contract with Kenny.

The association argued that provisions in the unit purchase contracts created contracts between Kenny and the purchasers. In the contract, the developer agreed that it would construct the building in accordance with the plans and specifications. The developer also reserved the right and authority for itself and its agents and contractors to access the property to complete construction.

The appeals court found that neither of these contract provisions established any contract between Kenny and the unit owners. Kenny was not a party to the individual purchase contracts, and it was the developer who promised the purchasers that it would construct the building. It also was the developer who hired Franks, who allegedly performed the defective work. Further, there was no evidence that the developer intended to assign its rights, obligations, and liabilities under the purchase contracts to Kenny, either expressly or impliedly, or that Kenny agreed to accept any such assignment.

The association argued that the holding in the Sienna Court case (issued two years after the association filed suit) overruled clear past precedent on which the individual unit owners relied and should not be applied retroactively to bar its claims. One of the factors to be considered in deciding whether a decision in a civil case should only be given prospective application is whether the case established a new principle of law, either by overruling clear past precedent on which the litigants may have relied or by deciding an issue not previously decided by the courts, whose resolution was not clearly foreshadowed.

The appeals court determined that the Sienna Court case did not establish a new principle of law. Instead, it clarified that a breach of the implied warranty of habitability required a contractual relationship between the parties to recover damages resulting from latent defects in the design, materials, and construction of a building. The appeals court found that the Sienna Court decision did not come out of the blue but was foreshadowed by earlier decisions applying the economic loss rule to construction cases involving latent defects.

Accordingly, the trial court's judgment was affirmed.

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Developer Misrepresentations Did Not Make Units Illegal

Brett/Robinson Gulf Corporation v. Phoenix on the Bay II Owners Association, Inc., No. 1180945 (Ala. June 30, 2021)

Developmental Rights: The Supreme Court of Alabama held that misrepresentations by a developer in a condominium offering statement about commercial units gave an aggrieved buyer the right to pursue individual claims, but it was not sufficient to make the commercial units illegal.


Phoenix on the Bay II Owners Association, Inc. (association) governed a condominium in Orange Beach, Ala. The declaration of condominium (declaration) initially created 104 residential units, and the City of Orange Beach issued a building permit for their construction.

Pamela Montgomery contracted to purchase a unit prior to construction. The condominium offering statement given to purchasers provided that the property could be used only for single-family residences and assigned fractional ownership interests in the common elements (fractional interest) only to the 104 residential units. The declaration further provided all parts of the condominium property not located within the individual units, including the lobby and reception area, the parking area, and all buildings and spaces not reserved to certain units, were part of the common elements.

However, the developer filed an amendment to the declaration purportedly establishing four commercial units for the following portions of the first floor: a check-in area, sales office, housekeeping area, and maintenance area. The amendment reduced each residential unit's fractional interest to allocate a percentage interest to the four new commercial units. It also stated that there were no limitations on the use of the commercial units.

The area designated for the housekeeping unit was never constructed and was just an open portion of the parking garage. The sales office unit consisted of glass panels attached to a wall in the lobby, without any ceiling. The check-in and maintenance units housed infrastructure and mechanical equipment serving the entire building and included water and sewer pipes, fire suppression system, emergency telephone equipment, standby generator annunciator panel, and controls for the elevator, security equipment, house lights, and irrigation system.

The developer's related company, Brett/Robinson Gulf Corporation (Brett/Robinson), was hired by the developer to manage the condominium after construction. Under the management agreement, Brett/Robinson provided on-site security, maintenance, pool, custodial, and front desk staffing and services and administrative services. Brett/Robinson procured condominium insurance that covered only the 104 residential units. Utilities were charged only to the residential units; the commercial units were not separately metered.

In May 2015, Montgomery became president of the association. In June, the association notified Brett/Robinson that it no longer required Brett/Robinson's custodial and pool services and would be utilizing third-party vendors. In July, the developer executed deeds conveying the four commercial units to Brett/Robinson, and Brett/Robinson demanded sole possession of the commercial units from the association. A few days later, the association terminated the remainder of the management agreement with Brett/Robinson.

Brett/Robinson sued the association and Montgomery, claiming trespass and interference with its business and contractual relationships with unit owners. The association filed a counterclaim and cross complaint against the developer, seeking a determination that the commercial units did not legally exist.

The trial court held that the provisions of the declaration purporting to create the commercial units were invalid and of no effect. It held that any area designated as a commercial unit was part of the common elements. The trial court also determined that the developer's rights had expired. The trial court ordered the developer to pay nearly $300,000 in attorneys' fees and costs to the association and Montgomery. Brett/Robinson and the developer appealed.

The appeals court found that the amended declaration made clear that the condominium would consist of 104 residential units and 4 commercial units. The as-built plans depicted and showed the boundary lines for each of the commercial units, which satisfied the requirements of the Alabama Uniform Condominium Act (act). The act provided that its provisions should be liberally construed to effectuate the act's purpose of encouraging condominium development.

The association complained that a unit could not be created until all structural components and mechanical systems were substantially completed in accordance with plans certified by an independent engineer or architect. However, the housekeeping unit was never built. The appeals court noted that, although the amended declaration set a time limit on when the developer's right to use unsold units and common areas expired, it did not impose a time limit on when the unit must be completed.

Montgomery complained that the commercial units were not disclosed in the offering statement. The act required that the offering statement be amended if there was any material change in the information. The appeals court found nothing in the act to suggest that a misrepresentation in the offering statement was grounds for finding that units designated in the declaration were not validly created. Rather, any violations of the act's disclosure requirements create a personal right of action by the aggrieved party. In particular, a prospective purchaser has the right to cancel the contract prior to closing.

As such, the appeals court found no basis for holding that the commercial units were not validly created. However, the trial court did need to address the association's right to access the common element infrastructure that was located within two of the commercial units.

Accordingly, the trial court's judgment was reversed, and the case was remanded for further proceedings.

Editor’s note: CAI filed an amicus brief in this case. CAI files amicus curiae (friend of the court) briefs to inform courts about important legal and policy issues in cases relevant to community associations. If your association, municipality, or state is faced with a poorly formulated legal opinion, consider submitting a request for an amicus brief. Contact Phoebe E. Neseth, Esq., at pneseth@caionline.org​ with any questions.

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County Inadvertently Terminates Public Beach Access By Attempting to Broaden Scope of the Public's Use Rights

A Flock of Seagirls LLC v. Walton County, Florida, No. 20-12584 (11th Cir. Aug. 5, 2021)

Municipal Relations: The U.S. Court of Appeals for the 11th Circuit held that a county's adoption of an ordinance granting beach use rights exceeded the access rights previously granted to the public by an easement agreement, triggering abandonment of the easement.


In the 1990s, the State of Florida (state) initiated eminent domain proceedings against the St. Joe Company (St. Joe) for some of its properties in Walton County, Fla. The parties agreed to a consent judgment that included a requirement that the parties record a permanent public access easement across St. Joe's property, allowing public pedestrian access across 75 feet of the beach sand landward of the Gulf of Mexico's mean high water line. The consent judgment bound both parties as well as their successors and assigns. In 1997, St. Joe entered into a separate easement agreement with Walton County (county) providing for a 20-foot access easement between a public parking lot and the beach.

In 2000, St. Joe began developing the WaterColor community. WaterColor's declaration of covenants, conditions, and restrictions affirmed that the easement was binding on WaterColor Community Association and all lot owners in the community. In 2002, St. Joe recorded an easement agreement that stated that the easement's purpose was to provide a way of passage, on or by foot only, to the county and its citizens, guests, invitees, and licensees over both the 75-foot easement area and the 20-foot easement area.

The easement agreement included an abandonment clause, which provided that the easements continued in effect so long as the county or its successor or assign used the easements for their intended purposes as expressed in the document. Should the county use or attempt to use an easement for a purpose not specified in the easement agreement, all rights granted by the easement agreement ceased and terminated, and all the county's interest in the easement areas reverted to St. Joe.

In 2017, the county adopted an ordinance stating that its purpose was to recognize and protect the public's long-standing customary use of the dry sand areas of all beaches in the county owned by private parties for recreational purposes. The ordinance specified various permitted uses of the beach by the public, including traversing the beach; sitting on the sand, on a towel, or in a chair; using a beach umbrella; sunbathing, picnicking, fishing, swimming, or surfing off the beach; placing surfing or fishing equipment on the beach; and building sand creations.

A Flock of Seagirls LLC and Valentines Heights LLC (collectively, owners) owned two beachfront lots in WaterColor that included the 75-foot easement area and sued the county in federal court, alleging that the ordinance was an unconstitutional taking of their property rights. They also asserted that the ordinance attempted to use the easement area for purposes other than a way of passage by foot only, which triggered the easement's abandonment clause.

The trial court acknowledged that the uses granted by the ordinance were more expansive and comprehensive than the use permitted by the easement agreement, but it reasoned that such expanded uses were still consistent with the easement's purpose. The trial court also determined that the owners had to show evidence that the county intended to abandon the easement. As such, it granted summary judgment (judgment without a trial based on undisputed facts) in favor of the county. The owners appealed.

The appeals court viewed the central question as whether the county's attempted use was "for a purpose not specified" in the easement agreement. The appeals court found that "specify" meant to mention or name in an explicit manner. It also determined that the easement agreement named its purpose explicitly—to provide a way of passage, on or by foot, over the easement areas. Under Florida law, an easement includes an implied right to do what is reasonably necessary for the full enjoyment of the easement.

The appeals court stated that, as a practical matter, the permitted pedestrian use of the easement may include incidental stopping and sitting on the sand. However, it found that other recreational uses contemplated by the ordinance, such as picnicking, sunbathing, swimming, building sandcastles, etc., went far beyond incidental use such that they could not reasonably be considered necessary for the full enjoyment of the pedestrian easement. As such, the appeals court held that the adoption of the ordinance triggered the abandonment clause.

The county argued that the public's right to use the dry sand areas of Florida's beaches was established by common law, irrespective of the easement. The appeals court noted, however, that the public's right to full use of the beaches was not absolute or boundless. In addition, if the public had the right to use the beaches based on common law, then neither the easement agreement nor the ordinance served any meaningful purpose.

The county contended that the easement agreement established a perpetual easement that could not be terminated. The appeals court stated that a perpetual easement was merely one that did not expire of its own force, but it could still be abandoned.

Accordingly, the trial court's judgment was reversed, and the case was remanded for further proceedings.

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Fair Housing Act Did Not Entitle Owner to Create Fenced Yard in Common Elements for Emotional Support Dogs

Guenther v. Walnut Grove Hillside Condominium Regime No. 3, Inc., No. S-20-574 (Neb. July 2, 2021)

Federal Law and Legislation: The Supreme Court of Nebraska held that an association was not obligated to grant a condominium unit's request to fence in part of the common elements for emotional support dogs where there was no evidence that the fence was necessary to afford an equal opportunity to use and enjoy the home.


Walnut Grove Hillside Condominium Regime No. 3, Inc. (association) governed a condominium in Omaha, Neb. Christine Guenther owned a unit in the two-unit duplex building within the condominium.

Guenther's daughter, N.G., attended college full time in Lincoln, Neb., but lived with Guenther in Omaha when not in school. N.G. had been diagnosed with major depressive disorder and anxiety. She kept two dogs as emotional support animals based on the advice of her doctor. The dogs lived with Guenther and did not travel to school with N.G.

In February 2018, Guenther asked the association for permission to construct a fence, at her expense, through part of the common elements behind her unit for the purpose of allowing the dogs to safety spend time outside while off-leash. Guenther asserted that releasing the dogs into a fenced-in area would alleviate N.G.'s anxiety about the dogs' well-being because she had been traumatized after her first emotional support dog was killed outside the unit. Guenther found the dog lying on the street close to the curb but did not know if the dog had been hit by a car or attacked by another dog. N.G. was not present when the dog was killed.

The association denied the request, stating that it lacked the authority to divide or partition the general common elements. The condominium covenants stated that ownership of the general common elements was to remain undivided, and no owner had the right to partition or divide the common elements.

Guenther made the request again in August. The association again denied it but suggested alternatives that would be permitted under the covenants and the association bylaws such as installing an underground invisible fence, constructing a privacy fence around her patio, or tethering the dogs while outside.

In January 2019, Guenther sued the association, claiming that the association had refused a reasonable accommodation under the federal Fair Housing Act (FHA) and violated her equal protection rights under the U.S. and Nebraska constitutions. Guenther alleged that the association had engaged in selective enforcement because two other neighbors had fences in the common elements, which were grandfathered in. There was a partial fence in the common elements behind Guenther's unit, and she claimed that constructing additional fencing to create an enclosed yard would not divide the common elements if it included a gate to allow residents to enter.

The trial court found that Guenther failed to prove her FHA claims. To prevail, Guenther had to show that a person residing in the unit was a handicapped person, as defined under the FHA, and that the reasonable accommodation was necessary to afford the handicapped person an equal opportunity to use and enjoy the premises. Guenther submitted a doctor's note confirming N.G.'s major depressive and anxiety disorders and stating that N.G. derived health benefits from the companionship of the family dogs. However, N.G. had been diagnosed with these disorders in 2015 and was no longer receiving treatment or medication for them. Guenther also failed to show that N.G. suffered from a physical or mental impairment that substantially limited one or more life activities as required to be handicapped for purposes of the FHA.

Guenther did not show that having a fenced yard was necessary to afford N.G. an equal opportunity to use and enjoy the home. Although N.G. primarily lived in Lincoln, when she was in Guenther's home, she was able to interact with the dogs and take them for walks. In addition, Guenther's neighbor had permitted Guenther to keep the dogs in her fenced yard for about two years. The trial court entered judgment in the association's favor, and Guenther appealed.

The appeals court also found that Guenther failed to prove that the requested accommodation was necessary to achieve equal housing opportunities for N.G. The FHA linked the term "necessary" to the goal of equal opportunity in housing.

Guenther had to show that the accommodation was indispensable or essential to N.G.'s equal opportunity to use and enjoy her dwelling to show that the accommodation was necessary. A necessary accommodation is one that alleviates the effects of a disability. The undisputed evidence was that, without a fence, N.G. freely enjoyed use of the dogs as comfort animals while in the community.

The only evidence presented of necessity was that N.G. would have more peace of mind if the dogs had their own fenced yard. However, the dogs already enjoyed the neighbor's fenced yard, and Guenther failed to address the association's proposed alternatives. There was no evidence that any of the alternatives would not have been effective.

Accordingly, the trial court's judgment was affirmed.

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McDonald's Did Not Get Exclusive Operating Rights

Market Square Properties Development, LLC v. TGRG, LLP, Nos. 1186 MDA 2020, 1187 MDA 2020 (Pa. Supr. Ct. June 9, 2021)

Covenants Enforcement: The Superior Court of Pennsylvania found that while a property owner consented to a sublease of commercial property to McDonald's, it did not agree to restrict its remaining property to bar other fast food restaurants.


The City of Wilkes-Barre Industrial Development Authority (IDA) owned a large parcel of land consisting of three lots (IDA parcel) in Wilkes-Barre, Pa. In 1988, the entire IDA parcel was leased to Revel Railroad, Inc. (Revel).

In 1989, Revel sublet a portion of the IDA parcel (lot 27) to Thomas Greco and TGRG, LLP (collectively, TGRG). TGRG then sublet lot 27 to McDonald's via an unrecorded ground lease (the McDonald's sublease). In the McDonald's sublease, TGRG promised that no one (except for the owner of an existing restaurant) would operate a hamburger restaurant within the remainder of the IDA parcel, with the term "restaurant" being defined as a food service establishment deriving 25% or more of its gross annual sales from the sale of hamburgers, ground beef products, and French fries including, but not limited to, Burger King, Wendy's, Jack-in-the-Box, Burger Chef, Hardee's, White Castle, and Roy Rogers (the restaurant restriction).

The McDonald's sublease provided that the restaurant restriction was a covenant that would run with the land. The only problem was that TGRG did not own the remaining portions of the IDA parcel. However, McDonald's and IDA entered into a non-disturbance and attornment agreement (NDAA), which was recorded. The NDAA acknowledged that TGRG had the right to enter into the McDonald's sublease and that McDonald's right to possess lot 27 would not be adversely affected by a dispute between IDA and TGRG. The NDAA did not reference the restaurant restriction.

Over the next several years, the IDA parcel was divided into six lots. TGRG's lease covered lot 1 (renumbered from lot 27) and lot 2. Market Square Properties Development, LLC (Market Square) had the rights to lots 3 through 6. Market Square then entered into a letter of intent with a third party to operate a Burger King on lot 3.

Market Square filed suit against TGRG, seeking a determination of whether the McDonald's sublease prevented the operation of a Burger King on lot 3. TGRG countersued, seeking a declaratory judgment (judicial determination of the parties' legal rights) and permanent injunction (order prohibiting or mandating certain action) against the operation of a Burger King. The trial court held that the restaurant restriction was not valid and quieted title (definitively established property ownership) to lots 3 through 6 in favor of Market Square. TGRG appealed.

TGRG asserted that IDA agreed in the NDAA that the restaurant restriction would encumber the portions of the IDA parcel it owned. One of the core requirements for creating a restrictive covenant on land is that the property owner must execute a document that explicitly imposes a restrictive covenant on the land or from which it can be inferred from the text that the property owner implicitly intended to do so. The intent of the parties must be ascertained from the document itself, where the terms are clear and unambiguous. Only where an ambiguity exists is evidence beyond the document itself admissible to explain or clarify the ambiguity.

TGRG argued that the words used in the NDAA demonstrated IDA's intent to create a restrictive covenant on the remaining portion of the IDA parcel. It was undisputed that IDA did not explicitly agree in the NDAA to create a restrictive covenant that would encumber its remaining property. The appeals court also found it unreasonable to infer from the NDAA that IDA implicitly agreed to create such a restriction.

The NDAA did not mention the restaurant restriction or use any words to demonstrate IDA's intent to create such a restriction. IDA merely agreed in the NDAA that TGRG was authorized to enter into the McDonald's sublease. Looking at the whole document, the NDAA merely preserved McDonald's rights under the McDonald's sublease if the lease between IDA and Revel terminated or if the sublease between Revel and TGRG terminated.

Accordingly, the trial court's judgment was affirmed.

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Ledger Showing Unpaid Balance is Insufficient to Prove Amounts Due by Owner

The Parks of Deer Creek Homeowners Association v. Hunter, No. 02-20-00406-CV (Tex. Ct. App. July 29, 2021)

Association Operations: The Texas Court of Appeals held that an association did not prove it was entitled to recover damages in a collection case where it merely presented a ledger without explanation or other proof.


The Parks of Deer Creek Homeowners Association, Inc. (association) governed a community in Tarrant County, Texas. Avanti Hunter owned a home in the community.

The association filed a collection action against Hunter, claiming that she failed to pay assessments as required by the community's declaration of covenants, conditions, and restrictions (declaration). At the trial, the association's counsel made an opening statement alleging that Hunter owed the association $3,606, comprising $1,348 in unpaid assessments and $2,257 in attorneys' fees.

The entirety of the association's proof of Hunter's liability consisted of five exhibits: the declaration, Hunter's deed showing that she owned the home, a demand for payment from the association to Hunter, invoices from the association's attorneys, and a ledger. The association's manager identified the exhibits but did not explain them other than to state that the ledger showed what was owed to the association or the attorneys' office. The association's attorney asserted that the ledger was a true and correct copy of an original that was kept in the regular course of business. Hunter did not raise an objection to the exhibits.

The association's attorney later said that Hunter owed additional attorneys' fees for prosecuting the case, which were not reflected in the ledger, and raised the attorneys' fees due to $3,554. After hearing all the testimony, the trial court noted that it had not heard any testimony that the amounts claimed were due and owing. The trial court entered a take-nothing judgment against the association, meaning that the association was awarded nothing in the case. The association appealed.

The association asserted that, once the ledger was entered into evidence in the case without objection, the trial court was obligated to enter judgment in the amount shown in the ledger in the association's favor. The association argued that its proof of damages was conclusive.

The appeals court disagreed, stating that the association's cavalier approach to its burden of proof left the trial court to determine what evidentiary weight to give the ledger. The ledger was submitted without any explanatory information about its contents or attempt to explain the hundreds of unexplained ledger entries in a manner that would permit the trial court to make some independent determination as to the amount owed by Hunter.

The appeals court said that this approach left the record blank on the pivotal question of what portion of the amount due was for unpaid assessments and what portion was for attorneys' fees. The association's only witness did not confirm the correctness of the amounts asserted by the association as due, testify that she had personal knowledge to support the information stated in the ledger, or otherwise vouch for the ledger's accuracy.

The trial court was given a lengthy ledger of unexplained entries that included both unpaid assessments and attorneys' fees but given no guidance on how to segregate the two types of entries to render judgment for the specific sums to which the association claimed it was entitled. Without further explanation, the ledger by itself was not conclusive proof of the association's damages. The attorney described the ledger as a business record but did not present the evidence that it was kept in the regular course of business, a requirement for proving the item is business record.

Accordingly, the trial court's judgment was affirmed.

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Amendment Specifying Prohibited Uses Merely Clarified Broadly Worded Restrictions in Original Declaration

RDC Melanie Drive, LLC v. Eppard, No. 48, Sept. Term 2020 (Md. Ct. App. July 15, 2021)

Covenants Enforcement: The Court of Appeals of Maryland held that a declaration's prohibitions on commercial uses, loud noises, and other activities annoying to other lot owners barred a driving range on a lot adjacent to a golf course.


In 1988, the six-lot Swan Point subdivision was developed next to The Links golf course in St. Michaels, Md. The Swan Point declaration of restrictions, covenants, and conditions (declaration) prohibited any noxious or offensive trade on any lot or any activity that may be or become an annoyance or nuisance to other lot owners. It provided that not more than one dwelling could be erected on any lot, and such dwelling was restricted to being a single-family dwelling. The declaration barred subdividing any lot but stated that the prohibition was not to be interpreted to prohibit the adjustment or realignment of boundary lines between lots.

In 2008, the owner of lot 6 recorded additional restrictions (lot 6 restriction) prohibiting any structure from being constructed on the lot and providing that the restriction was to be liberally interpreted to effectuate the purpose and preservation of the natural values and amenities of the lot. The owners of four of the other lots were named as benefitted parties of the lot 6 restriction.

Between 2015 and 2016, RDC Melanie Drive, LLC (RDC) purchased the golf course and the nearly 30-acre lot 6. RDC sought to redevelop the golf course, including relocating the driving range and expanding the golf course onto a portion of lot 6, and sought a zoning change for lot 6. Mark Eppard and three other lot owners in Swan Point (collectively, the owners) opposed the zoning change.

The Talbot County Board of Appeals (county) approved zoning variances for lot 6, including allowing the golf course to be expanded onto a portion of lot 6. However, the county said it lacked the authority to consider the effects of any private covenants that might impact the lot.

The declaration could be amended by a document signed by two-thirds of the lot owners. In 2017, the owners recorded an amendment to the declaration (amendment) that prohibited any lot from being converted from residential or agricultural use into a commercial or private golf course, or from being utilized in connection with a golf course. The amendment specifically provided that it was intended that the subdivision retain its character as a residential, single-family dwelling community.

In 2018, RDC recorded a plat adjusting the boundary line between lot 6 and the golf course, which moved nearly 13 acres from lot 6 into the golf course lot. The owners petitioned the trial court for review of the county's zoning decision and for a determination that the declaration prohibited the conversion of lot 6 into a driving range.

The trial court determined that the declaration's prohibition on subdividing the lots restricted the creation of new lots but permitted the adjustment or realignment of the boundary lines of existing lots. It ruled that RDC's plat reducing the size of lot 6 was a permitted boundary line revision, but the roughly 13 acres that were formerly part of lot 6 remained subject to the declaration. The trial court found that the amendment clearly prohibited using the property for a driving range. The trial court determined that the question of whether the lot 6 restriction prohibited a driving range was moot since the amendment already prohibited such use and declined to rule on such matter.

RDC appealed to the Maryland Court of Special Appeals, which affirmed the trial court's ruling. RDC appealed further to the Maryland Court of Appeals (appeals court).

RDC contended that the amendment was not enforceable because it imposed a new restriction that was not included in the original declaration. Prior case law held that an amendment is not valid where the original declaration did not expressly authorize the type of change sought to be made. RDC argued that the original declaration never restricted the property solely to residential use and insisted that there was no evidence that a driving range would be inconsistent with residential use since the golf course had operated alongside the subdivision for decades.

Although the original declaration did not expressly restrict the lots to residential use only, the appeals court found that the declaration's purpose was clearly to maintain the residential character of a small subdivision comprising single-family homes. The preamble to the declaration stated that the general purpose was to impose restrictions that promoted the values and character of the community. The declaration's provisions regarding liberal interpretation to effectuate a uniform plan also were intended to create a uniform, residential community.

The appeals court found numerous restrictions in the original declaration designed to preserve the subdivision's residential character by broadly restricting activities that would disturb neighboring owners. For example, the declaration specified that several loud noisemaking devices that were prohibited, all of which were distinctly residential in nature.

The appeals court determined that the original declaration's prohibition on commercial activities would bar hitting golf balls, using golf ball collection machines, and loud gatherings of golfers and patrons because such activities were not plainly within the contemplated residential character of the subdivision. It also found that the declaration's nuisance prohibition was broadly written to prohibit not just activities that constituted a legal nuisance but also activities that unreasonably interfered with other owners' use and enjoyment of their lots.

The appeals court held that the amendment merely clarified the preexisting, uniform, and broad restrictions against offensive, noxious, annoying, or nuisance activities by specifying a driving range as one such activity. Accordingly, the trial court's judgment was affirmed.

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Airbnb Occupancy Agreement is a Commercial Use but not a Short-Term Rental

Wood v. Evergreen Condominium Association, No. 1-20-0687 (Ill. App. Ct. July 7, 2021)

Use Restrictions: The Appellate Court of Illinois held that a short-term rental restriction did not bar Airbnb short-term occupancy licenses, but the activity did violate the commercial use prohibition.


Evergreen Condominium Association (association) governed a 12-unit condominium in Chicago. Domini Wood owned a unit in the condominium.

Wood was elected as president of the association in May 2019, but a dispute arose among the board of directors (board) regarding Wood using her unit for short-term rentals through Airbnb. In November, the association's attorney sent Wood a notice of violation of the declaration of condominium (declaration).

In December, the board voted to remove Wood as president. Brad Tercek, the vice president, then became the acting association president. The board also voted to place the condominium on the City of Chicago's Prohibited Buildings List, which banned all short-term rental activity of the property on the basis that short-term rentals were prohibited by the declaration or the association's bylaws.

Wood sued the association and Tercek (collectively, the defendants), seeking a declaratory judgment (judicial determination of the parties' legal rights) that the violation notice was invalid, that the placement of the building on the Prohibited Buildings List was invalid, and that owners were not prohibited from using their units for transient occupancy. Wood also asserted a claim for breach of fiduciary duty, claiming that the defendants owed her a duty to strictly comply with the condominium governing documents.

The declaration prohibited the lease, sublease, or assignment of a unit for fewer than 30 days. It also prohibited any business, industry, trade, occupation, or profession of any kind from being conducted on the property. Wood contended that a short-term rental through Airbnb was not a lease but a temporary, revocable license, which was not prohibited by the declaration. She asserted that use of her unit to host transient guests for residential purposes did not constitute a commercial use of the unit. Wood also argued that the rental of her unit did not occur on the property and took place solely over the internet.

The trial court determined that Wood was granting her guests licenses rather than leases, which was not prohibited by the declaration. However, it ruled that using the unit in such manner constituted business use of the property in violation of the declaration. The trial court granted judgment in the defendants' favor and dismissed the case. Wood appealed.

The Airbnb terms of service provided that an accommodation reservation was a limited license to occupy and use the accommodation, but the host retained the right to re-enter the accommodation during the guest's stay to the extent reasonably necessary. The defendants argued that Wood was engaging in exactly the same behavior prohibited by the declaration's short-term rental ban, regardless of whether it was characterized as a lease or a license. They contended that the plain meaning of the term "lease" in the rental restriction was clearly meant to encompass the type of arrangements Wood had with her short-term renters.

The appeals court noted that the declaration did not define the term "lease," but it was not synonymous with a license. A lease transfers exclusive possession of the property to the lessee. A license merely entitles a party to use the property for a specific purpose, subject to the management and control retained by the owner. Wood's arrangement with her guests seemed more like a license since the Airbnb terms of service provided that the host had the right to re-enter the unit during the guests' stay, so the guests were not granted exclusive possession.

The declaration's short-term rental restriction did not specifically mention licensing a unit. As such, the appeals court declined to read a prohibition on licenses into the restriction based on the principle that restrictive covenants must be strictly interpreted, and all doubts must be resolved in favor of the free use of the property.

The defendants urged that the declaration's residential use restriction also prohibited short-term rentals. The restriction required that each unit be used only as a residence for a single family or such other uses permitted by the declaration. The appeals court found nothing in the restriction to prohibit short-term rentals, stating that there was no indication that Wood was licensing the unit for a purpose other than residential occupancy, even if the occupancy was for a short duration.

The appeals court noted that the declaration also did not define "business," so it consulted dictionaries to determine that the term meant a commercial activity engaged in a means of livelihood, a commercial enterprise, or dealings or transactions especially of an economic nature. The appeals court found that Wood's activities certainly qualified as dealings or transactions of an economic nature because she was engaging in a business transaction with her short-term renters. Wood was providing a service and a product in exchange for payment.

Wood insisted that any business activity occurred solely over the internet. She insisted that the declaration's prohibition on using a unit for commercial use applied only to physical manifestations of business. Taking all the declaration's restrictions on use into account, the appeals court found it abundantly clear that the declaration intended to address various permissible and impermissible uses of the property and included restrictions regulating activities that were visible from outside the unit as well ones that were not visible.

Wood complained that interpreting the business use restriction to restrict short-term rentals meant that owners could not conduct work-related phone calls or similar activities inside a unit. The appeals court pointed out that the declaration specifically provided that the business use restriction did not prohibit an owner from handling business phone calls from inside the unit.

Accordingly, the trial court's judgment was affirmed.

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